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What Affects Your Credit The Most: Debt Settlement, Debt Consolidation or Bankruptcy?

By J Chase

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Published: 23Jan2010
Word count: 458
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Eliminating debt, or at least eliminating unsecured debt, is the goal of most Americans right now. Getting free from credit card debt, medical bills, unsecured lines of credit, student loans and other unsecured debt could free up thousands of dollars per month for people across the country. Unfortunately, being able to get free from that debt can mean ruining your credit score for years depending upon the solution you choose. So, every American should know how each form of debt relief will impact their credit report.

Debt Consolidation - A debt consolidation loan allows the consumer to pay back debt at a lower interest rate. While the total amount of debt is not decreased, it is consolidated into one primary account which helps you to avoid paying varying rates of interest to lenders. A borrower with very good credit might benefit from such a plan if they can get a low enough interest rate from the debt consolidation company. For the most part, this does not help to improve your credit score at all, and could create problems if you fall behind on the payments to the consolidated loan.

Debt Settlement - Hiring a debt settlement company to negotiate a lower total debt could help you wipe out debts quicker than other options. A debt settlement company will create a debt management plan that consolidates all credit card debt, medical bills and other forms of unsecured debt. For a fee, they will negotiate down your debts, sometimes cutting your debts in half, or more. This will have short term affects on your credit, because you are not paying back your debts in full, and might even be asked not to pay your debts for a period of time.

Bankruptcy - For severe financial situations, and debt problems that are particularly intense, bankruptcy is often an option explored by consumers. Unfortunately, bankruptcy has financial consequences that will last up to a decade. A bankruptcy typically stays on your credit report for at least seven years, and whenever you purchase a home, buy a car or apply for any line of credit, the bankruptcy will either get your request rejected or increase you interest rate mercilessly. As a result, most conventional wisdom suggests that bankruptcy should be more than just a last option; it should be avoided at all costs. However, for some homeowners, declaring bankruptcy may present a way to save their home.

Many consumers who are having serious debt problems can't afford to borrow money anyway, so lowering their credit score is not that big a deal. Hiring a debt settlement company or using some other form of debt relief may cause a temporary black mark on your credit report, but it can also help you solve your debt problems.

J Chase is a debt settlement professional. He is affiliated with a national debt settlement company which has helped 1000's of people eliminate their debt effectively. He has extensive knowledge of the internal and national debt settlement programs. For more information visit http://www.debtsettlerz.com

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